Keep Buying GrubHub, Says Goldman

GrubHub Inc GRUB reported robust 1Q revenues of $112 million, representing 27 percent y/y growth and 36 percent q/q growth. Goldman Sachs’ Heath P. Terry maintained a Buy rating for the company, while raising the price target from $28 to $31. The analyst expects operating leverage within delivery to improve.

GrubHub: Poised For Further Growth

GrubHub’s adjusted EBITDA of $32.4 million and margins of 29 percent were in-line with the guidance and consensus expectations. The company recorded gross food sales of $713 million, representing 21 percent y/y growth, driven by 24 percent y/y growth in active diners.

Growing scale and efficiencies resulted in a decline in incremental investment per delivery, taking the company’s net investment in delivery to $4 million in 1Q, down from $5.5 million in 4Q. GrubHub raised the low-end of its FY16 revenue guidance range from $445-$465 million to $450-$465 million, while reiterating its EBITDA guidance of $122-$130 million.

Analyst Heath Terry mentioned that GrubHub appears well positioned to take share of the $77 billion US takeout and delivery market, as it enters new markets while expanding its presence in existing markets. The easing of VC backed competitive pressures and increased online ordering by consumers are also expected to boost GrubHub’s performance going ahead.

The company ended the quarter with an annual run rate of $250 million in delivery gross food sales, versus $200 million at the end of 4Q.